April 2007 ET Pat Curry
Mortgage fraud can take countless forms, says Ann Fulmer, an attorney, mortgage fraud investigator and founder of the Georgia Real Estate Fraud Prevention and Awareness Coalition. Homebuyers can run afoul of the law under a broad category called "fraud to qualify" or "fraud for house." In these cases, the borrower typically provides false information, such as income, source of down payment, employment, or intent to occupy the property.
Or, the fraud might be in the form of what's called a silent second. The seller lends the buyer money for a down payment through an unrecorded second mortgage. When this happens, the lender thinks the borrower is investing his own money. Why would lenders care? "The critical issue is the risk the lender is taking," Fulmer says. "It misrepresents the financing picture of the borrower."
Whatever the form of fraud, the goal is the same: to obtain a mortgage for which the borrower would not legitimately qualify. In these cases, the borrower wants the house and plans to repay the loan.
Then, there is "fraud for profit," a much more sophisticated version of mortgage fraud that involves industry insiders, such as real estate agents, appraisers, lenders or closing attorneys.
While there are an infinite number of variations on fraud for profit, these are among the most common:
Flipping. This term has gotten confused because of TV shows, such as "Flip This House," which isn't flipping at all. Those types of deals, in which houses are acquired legitimately, improvements are made and the houses are resold quickly, are known in the business as quick turns. "There is nothing wrong with that," Fulmer says. "It becomes illegal when people start lying about the improvements, the value of them or (lying) to qualify the buyer." Flipping involves a fraudulent appraisal and a grossly inflated sales price.
Straw buyers. One of the most frequent types of fraud occurs when "straw buyers" are used to hide the identity of the true borrower, who would not qualify for the mortgage. "The perpetrators use a straw buyer because they have good credit and can get the loan," Fulmer says. Straw buyers may be duped into thinking that they're investing in real estate that will be rented out, with the rental payments paying the mortgage. In fact, no payments are made and the lender forecloses on the loan. Or, sometimes, straw buyers are in on the scam and are getting a cut of the proceeds. "People may see this as a way to make a lot of money," Fulmer says. "In one case, a number of straw buyers purchased numerous properties and received boatloads of money back."
Appraisal fraud. Appraisal fraud is a part of most mortgage fraud scams. A dishonest appraiser inflates the value of the property. When the seller gets the check at the closing for a bogus amount, he pays off the appraiser and anyone else involved in the scam. Usually, the borrower doesn't make any payments and the house goes to foreclosure.
Foreclosure schemes. These are particularly evil because they prey on people with big enough financial problems that they're in danger of losing their home. A homeowner in the early stages of foreclosure may be contacted by a fraudster who says he can help the homeowner get rid of his debt and save his house for an upfront fee, which the fraudster takes and then disappears. In another scheme, a homeowner is approached by a con artist who offers to help them refinance the loan. "They sign all these documents and find out later that they actually sold the house -- to the fraudster. Then they face eviction. That's a lovely one." Read more about foreclosure and power of sales
Read more about mortagesFor more information please contact A. Mark Argentino
A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1
BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
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